Mike Dennis Comments: Morrisons: what the analysts say about Dalton Philips’ exit and trading

 January 13, 2015, Retail Week – Online

Retail analysts assess Morrisons’ prospects following its Christmas update and news that boss Dalton Philips will leave the grocer. 


“We believe there are plenty of experienced strong retail executives available like David Potts and John Durkan who could take on this role. 


“The new chief executive will, in our view, need to understand how Morrisons can build a better wwwuct offering and manage underlying costs when top-line industry sales are expected to remain under pressure in 2015.” – Mike Dennis, Cantor Fitzgerald 


“Harsh though it may sound, we would expect the share price to outperform on the back of the chief executive change – and indeed the reasonable like-for-like numbers – as it may herald a more aggressive approach from management. 


“Having said that, at first glance we find it difficult to see how a new chief executive will really change the company’s approach dramatically – many people tend to think that Morrison has been heading in the right direction in the last year, as indeed some of the metrics visible today suggest. 


“Whoever the new chief executive is, there is clearly a risk that there will be a pause for thought – which may not be ideal given the fast pace of change in the UK food retail market. – James Anstead, Barclays 


“Morrison is a potentially interesting recovery play given that management has taken some tough medicine already, particularly with its cost base and cash outlays. We give a lot of credit to chief financial officer Trevor Strain in this respect. 


“While indebted, management has today reiterated an expectation of year-end net at £2.3bn to £2.4bn after c£400m to £500m of property disposal proceeds, Morrisons is expected to deliver a year-on-year reduction in leverage, and unlike Tesco it has much more manageable pension responsibilities. 


“Additionally, Morrisons has a robust retail estate with relatively high freehold participation and so scope on an ongoing basis to release cash to deleverage from shopping centres, manufacturing and distribution facilities. 


“Furthermore, vertical integration, whilst central to management’s current plans on operations and proposition to date, also represents a store of value for management to potentially explore if needs must.” – Clive Black, Shore Capital 


“Companies don’t normally ‘stick to guidance and beat consensus’ and ‘replace CEO/chairman’ at the same time. 


“With the easiest comps last year, and the longest track on its new strategy, Morrisons still underperforms materially its peers. 


“While they stick to the current year guidance (only two more months to go), we see this as a path to finally deciding to cut the dividend and resetting the rate at which Morrisons will be able to rebuild profitability from next year onwards.” – Bruno Monteyne, Bernstein 


“Not all of Morrisons’ problems were of Mr Philips’ making. He inherited a business that was ill-equipped to deal with many of the challenges of a rapidly changing grocery world and it is fair to say that he has been playing a game of catch-up since he took the top spot. 


“Progress has been made in many areas, but it has often been piecemeal and at the expense of brand clarity – what the brand stands for and how it is differentiated in a very crowded marketplace. 


“With a new chairman, Andrew Higginson, stepping up to the plate this will be a period of change at Morrisons. 


“Putting the shuffling of the boardroom deck to one side, we do not believe that this Christmas offered any significant sense of recovery at Morrisons. 


“While the numbers showed an improvement on earlier quarters this year, we know from the BRC figures that the grocery market as a whole showed an improvement over Christmas. 


“As such, Morrisons is merely reflecting a wider trend. Moreover, compared to last Christmas Morrisons’ sales performance has actually deteriorated sharply.”